All posts by Albana Musta

On February 17, 2022, the Canadian Council of Insurance Regulators (“CCIR”) and the Canadian Insurance Services Regulatory Organizations (“CISRO”) released proposed guidance on incentive management related to the sale and servicing of insurance products (the “Proposed Guidance”).

The Proposed Guidance applies to insurers and intermediaries that pay compensation (monetary or non-monetary) and/or design incentive arrangements related to the sales and servicing of all insurance products, and provides CCIR’s and CISRO’s expectations with respect to the design and management of such arrangements.

The Proposed Guidance ensures that insurers and intermediaries develop incentive arrangements that achieve the fair treatments of customers and is intended to complement the joint guidance released by CCIR and CISRO in September 2018 (the “FCT Guidance”). The FCT Guidance sets out CCIR’s and CISRO’s expectations (to the extent of their respective authority) relating to the conduct of insurance business and fair treatment of actual and potential customers of insurance products.

The Proposed Guidance is described as being principles-based, providing insurers and intermediaries with the discretion to develop appropriate strategies, based on the nature, size and complexity of their business activities, that relate to governance, design and management of incentive arrangements, risks of unfair outcomes to customers and post-sale controls. Below is a summary of the objectives and principles set out in the Proposed Guidance.

1. Governance

Objective – CCIR and CISRO expect insurers and intermediaries’ governance and business culture to place fair treatment of customers at the center of decisions concerning the way incentive arrangements are designed and managed.

Board and senior management have the ultimate responsibility to design, approve, implement, and monitor appropriate strategies, policies, procedures and controls that align with the overall risk appetite and culture of the organization, as it relates to incentive arrangements and fair treatment of customers.

Senior management should also consider working closely with risk management, compliance, legal and any other teams to determine any changes required to manage risks related to fair treatment of customers.

2. Design and Management of Incentive Arrangements

Objective – CCIR and CISRO expect insurers and intermediaries to design and implement

incentive arrangements that include criteria ensuring fair treatment of customers.

Incentive arrangements should be designed in accordance with the following objectives:

• be consistent with the level of service expected and provided throughout a product’s life cycle;
• ensure that performance targets and criteria are clearly defined, measurable and are aligned to ensure fair treatment of customers; and
• the cost of the product to the customer does not vary based on the distribution method.

The method and manner of implementation of incentive arrangements and the role that management plays in the process are equally important. In addition to managing potential conflicts of interest, management is also advised to take steps to identify and correct what it views as inappropriate practices against customers as a result of incentive arrangements.

3. Risk of Unfair Outcomes to Customers

Objective – CCIR and CISRO expect insurers and intermediaries to regularly identify and assess the risks of unfair outcomes to customers that may arise from incentive arrangements so that either appropriate controls can be introduced, or the incentive arrangements can be adjusted.

Insurers and intermediaries are expected to review their incentive arrangements regularly and, if appropriate, consider changes to such arrangements that may result in unfair outcomes to customers.

4. Post-sale Controls

Objective – CCIR and CISRO expect insurers and intermediaries to establish effective post-sale controls to identify inappropriate sales resulting from incentive arrangements.

Effective post-sale controls should enable insurers and intermediaries to determine whether there are any unsuitable sales resulting from specific incentive arrangements, to identify any significant risks in connection with the unfair outcome to customers and mitigate such risks, as necessary.

Examples of Incentive Arrangements that May Undermine Fair Treatment of Customers

The Proposed Guidance also includes an appendix which provides examples of incentive arrangements components which, without proper design, management and post-sale controls, may increase the risk of unfair outcomes for customers. Among others, CCIR and CISRO, identify the following examples of incentive arrangements that may raise concerns:

• agreements between insurers and intermediaries incentivizing intermediaries’ conduct that could be inconsistent with fair treatment of customers;
• bonus rates that increase with predetermined sales volumes;
• excessive cross-selling incentives;
• lifetime vesting of renewal commissions to intermediaries which can result in eventual client orphaning;
• commissions linked to premium levels or investment amounts;
• arrangements that create exit fees or penalties for customers;
• performance criteria focused on meeting quantitative targets, which do not effectively align with interests of customers; and
• chargeback mechanisms that may influence an intermediary to advise a customer to retain a product that does not meet the customer’s needs.

Interested parties are invited to submit comments related to the Proposed Guidance until April 4, 2022.

Effective as of January 1, 2020, Saskatchewan’s new Insurance Act has come into force. The new Insurance Act was enacted by the Government of Saskatchewan on May 2015 and replaces prior legislation which was first enacted in 1913.

The new legislation is now available on the Publications Saskatchewan website, or you can access The Insurance Act and the Insurance Regulations through this post. Some of the highlights of this new legislation include:

• new market conduct standards;
• new licensing and supervision requirements for insurance distributors, such as new licensing categories for MGAs and third-party administrators; and
• expansion of the restricted insurance agent licensing regime related to the sale of insurance in conjunction with the sale of certain other products and services.

The new legislation will bring Saskatchewan’s insurance legislation into closer alignment with the regulatory regimes of the other western provinces British Columbia, Alberta and Manitoba.

In order to assist insurers and other industry stakeholders with the transition to the new legislation, the Financial and Consumer Affairs Authority of Saskatchewan (the “Regulator”) is developing guidelines and interpretation bulletins to communicate the Regulator’s expectations. The Regulator has developed the following guidelines and interpretation bulletins to date:

• Guideline No.: G1/2019 – Records to be Kept in Saskatchewan or approved location (revised); and
• Bulletin No.: B1/2019 – Notice of Dispute Resolution Process.

On September 18, 2018 the Office of the Superintendent of Financial Institutions (OSFI) published the final updated version of its Corporate Governance Guideline (“2018 CG Guideline“). The 2018 CG Guideline is more principles-based and sets out OSFI’s expectations for boards of directors (the “Board”) of federally regulated financial institutions, focusing particularly on Board effectiveness.

The 2018 CG Guideline’s main updates include:

1. providing Boards with more discretion to meet the principles of the guideline, considering their organizations’ size, complexity and risk profile;
2. clarifying the delineation between Board and senior management responsibilities; and
3. consolidating Board duties previously set out in numerous OSFI guidelines and advisories.

OSFI has said it will conduct information seminars for directors and corporate secretaries of federally regulated financial institutions in fall 2018.

Please note that the 2018 CG Guideline does not apply to the Canadian branch operations of foreign financial institutions. However, OSFI plans to review and amend guidelines E-4A Role of the Chief Agent & Record Keeping Requirements and E-4B Role of the Principal Officer & Record Keeping Requirements in the near future.

The Forfeited Corporate Property Act, 2015 (the “FCPA”) is a new Ontario statute that came in force on December 10, 2016 and made changes to the law regarding forfeited personal and real property following the dissolution of a corporation. As part of such changes, the FCPA imposed certain amendments to the Ontario Business Corporations Act (the “OBCA”) and Ontario Corporations Act that relate to new record-keeping obligations for both, new and existing Ontario corporations. Below, we are focusing on the amendments to the OBCA. These amendments are likely intended to make it easier for the Province of Ontario to locate the assets of dissolved corporations and assist the Province to use or sell any forfeited property.

1. Register of interests in land in Ontario and supporting documents

A new section 140.1 has been added to the OBCA. Subsection 140.1 (1) provides that:
“A corporation shall prepare and maintain at its registered office a register of its ownership interests in land in Ontario.”

The OBCA does not define the term “ownership interest”. However, it has been suggested that the phrase extends to both legal and beneficial interests in land. Such register shall identify each property and show the date the corporation acquired the property and, if applicable, the date the corporation disposed of it.
In addition, corporations are required to keep supporting documents with the property register, such as a copy of any deeds, transfers or similar documents that contain any of the following with respect to each property listed in the register:

1. The municipal address, if any;
2. The registry or land titles division and the property identifier number;
3. The legal description; or
4. The assessment roll number, if any.

The wording of the new section 140.1 suggests that these new requirements do not extend to ownership interests situated outside Ontario and to other Canadian corporations (incorporated federally or in any other Province, except Ontario), even if they hold ownership interests in land in Ontario.

2. Timing of Compliance

The amendments to the OBCA come into force on December 10, 2016 and apply immediately to all corporations that are incorporated or continued under the OBCA on or after such date. Corporations that were in existence before December 10, 2016 should be aware that the same law will apply to them as of December 10, 2018.